4. The Security Market Line (SML) is: a. the line that describes the expected return-beta relationship for well diversified portfolios only. b. also called the Capital Allocation Line. c. the line that is tangent to the efficient frontier of all risky assets. d. the line that represents the expected return beta relationship. e. the line that represents sthe relationship between an individual security's return and the market's return.

4. The Security Market Line (SML) is: a. the line that describes the expected return-beta relationship for well diversified portfolios only. b. also called the Capital Allocation Line. c. the line that is tangent to the efficient frontier of all risky assets. d. the line that represents the expected return beta relationship. e. the line that represents sthe relationship between an individual security's return and the market's return.

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter25: Portfolio Theory And Asset Pricing Models

Section: Chapter Questions

Problem 4P

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Question 2 a) Plot the Security Market Line (SML).b) Superimpose the CAPM’s required return on the SML.c) Indicate which investments will plot on, above and below the SML?d) If an investment’s expected return (mean return) does not plot on the SML, what doesit show? Identify undervalued/overvalued investments from the graph
Please do a and b separate (Question 2) a) Plot the Security Market Line (SML)b) Superimpose the CAPM’s required return on the SMLc) Indicate which investments will plot on, above and below the SML? d) If an investment’s expected return (mean return) does not plot on the SML, what doesit show? Identify undervalued/overvalued investments from the graph.
The slope of the Security Market Line equals to ____, and the slope of Capital Allocation Line equals to____. Select one: A. Beta; Sharpe Ratio B. Market Risk Premium; Sharpe Ratio C. Risk free rate; Volatility D. Market Risk Premium; Volatility
The security market line depicts: a. Expected return as a function of systematic risk (indicated by beta) b. The market portfolio as the optimal portfolio of risky assets c. The relationship between a security’s return and the return on the index d. Portfolio combinations of the market portfolio and the risk-free asset e. Expected return as a function of volatility
The security market line depicts:a. A security’s expected return as a function of its systematic risk.b. The market portfolio as the optimal portfolio of risky securities.c. The relationship between a security’s return and the return on an index.d. The complete portfolio as a combination of the market portfolio and the risk-free asset.
Which one of the following is the formula that explains the relationship between the expected returnon a security and the level of that security's systematic risk?Select one:a. Time value of money equationb. Unsystematic risk equationc. Expected risk formulad. Market performance equatione. Capital asset pricing model
1. Fill the parts in the above table that are shaded in yellow. 2.Using the data generated in the previous question (Question 1) a. Plot the Security Market Line (SML) b. Superimpose the CAPM’s required return on the SML c.Indicate which investments will plot on, above and below the SML? d.
Which is least likely correct about security valuation?a. The calculated or determined value considers the stream of future cash flows.b. The calculated or determined value equals the market price.c. The calculated or determined value considers the risks involved and the opportunity cost.d. The calculated or determined value allows the investors to evaluate whether a security isovervalued or undervalued.e. All of the above
The capital allocation line provided by a risk-free security and N risky securities is A. the line that connects the risk-free rate and the portfolio of the risky securities that has the highest expected return on the efficient frontier. B. the line tangent to the efficient frontier of risky securities drawn from the risk-free rate. C. the horizontal line drawn from the risk-free rate. D. the line that connects the risk-free rate and the global minimum-variance portfolio of the risky securities.
An efficient capital market is best defined as a market in which security prices reflect which one of the following? Multiple Choice A Current inflation B A risk premium C All available information D The historical arithmetic rate of return E The historical geometric rate of return
6. Capital market line A. is formed by combining the risk-free asset with an efficient portfolio B. contains portfolios that provide the highest Sharp ratio C. is tangent to the efficient frontier of risky assets D. all of the above
If a security is underpriced (i.e., intrinsic value > price), then what is the relationship between its market capitalization rate and its expected rate of return?